Smart direct listing is a big test for London

LONDON – Wise, one of Britain’s largest fintech companies, is about to go public. And it will be a major test for post-Brexit London.

The money transfer company has chosen to list its shares directly on the London Stock Exchange, using an unusual listing method started by Spotify in the United States three years ago.

First operations at Wise are expected to begin shortly after 11:22 a.m. London time, according to the company’s prospectus.

Wise, formerly known as TransferWise, was founded in 2010 by Estonian friends Taavet Hinrikus and Kristo Käärmann. Frustrated with the high fees they faced to send money between the UK and Estonia, they came up with a new way to make cross-border transfers at the real exchange rate.

The service proved popular with the British and has rapidly expanded abroad. Wise claims to have more than 10 million customers who use its service to send £ 5 billion ($ 7 billion) across borders every month.

Wise competes with traditional bank transfer operators like Western Union and MoneyGram, as well as fintech upstarts like Revolut and WorldRemit.

Unlike many venture-backed tech companies, Wise has been profitable for years. The company broke even for the first time in 2017. In its 2021 fiscal year, Wise doubled profits to £ 30.9 million ($ 42.7 million) while revenue increased 39% to £ 421 million.

The largest shareholders in Wise are the founders Käärmann and Hinrikus, who own 18.8% and 10.9% of the company, respectively. The main outside investor in the new company is Peter Thiel’s Valar Ventures, who has a 10.2% stake in the business.

Early Käärmann and Wise investors will receive enhanced voting rights for five years after Wednesday’s listing thanks to a planned dual-class share structure. Tech giants like Facebook and Alphabet pioneered these kinds of ownership structures.

It is an alternative to an initial public offering, or IPO, where a private company offers shares to the public for the first time.

Swedish music streaming service Spotify was an early adopter of the method, and it became public through a direct listing on the New York Stock Exchange in 2018. The US workplace messaging app Slack and the cryptocurrency exchange Coinbase have also gone public through direct quotes.

Unlike a traditional IPO, directly listed companies do not issue new shares or raise fresh capital. This process also avoids the need for investment bankers to underwrite the offer. However, Wise has the advice of banks such as Goldman Sachs and Morgan Stanley.

Tech founders and venture capitalists say direct listings can be a more attractive route to the stock market than an IPO, as it avoids paying high underwriting fees and potential stock mispricing.

Wise was last privately valued at $ 5 billion in a secondary sale of shares. Since it is listed directly, there is no pricing process like the one companies normally experience with an initial public offering, and the price of the stock will be determined by the market once it is listed.

Wise’s listing is a huge win for London, which is vying to attract more tech success stories following Britain’s exit from the European Union.

UK regulators are currently consulting on proposals to relax London’s listing regime and make it more attractive for tech companies to list in the capital.

It’s also a validation for the country’s burgeoning fintech sector, which has produced multi-million dollar unicorns like Revolut and Checkout.com and attracted $ 4.1 billion in venture capital investment last year.

However, Wise’s float will also be an important test for the city. Wise says its debut on the market will be the first direct listing of a technology company in London.

“It’s risky,” Russ Shaw, founder of Tech London Advocates, told CNBC. “This really hasn’t been done that often, especially with a fintech business.”

But he added: “They are a profitable business. They don’t have the baggage that Deliveroo brought to the table. “

The initial public offering of the food delivery company Deliveroo was rejected by large institutional investors due to concerns about its gig economy model and a dual-class share structure that gave founder Will Shu more than 50% of the voting rights. Deliveroo fell as much as 30% on its first day of operation.

Despite concerns about governance with such ownership structures, Wise said its dual class shares are structured in such a way that no existing shareholder will have more than half of the voting rights just from holding class B shares.